Sweden: The central bank surprises with a rate hike of 100 points


by Simon Johnson

STOCKHOLM (Reuters) – Sweden’s central bank on Tuesday announced a one-percentage-point hike in its key interest rate to 1.75%, a bigger-than-expected rise, and warned that it plans to continue to tighten its monetary policy to fight inflation.

This rate hike is the largest in Sweden since November 1992.

“Inflation is higher than the Riksbank forecast in June and is expected to pick up further by the end of the year,” the central bank said in a statement.

“The policy rate is expected to continue to rise over the next six months.”

Inflation in Sweden hit 9.0% in August, its highest level in 30 years, as the sharp rise in energy prices gradually spread through the economy.

“By raising the policy rate further today, the risk of longer-term high inflation is reduced, and with it the risk of further monetary policy tightening in the future,” the Riksbank statement continued. .

Analysts polled by Reuters ahead of the monetary policy meeting overwhelmingly expected a hike of only 75 basis points in the key rate.

The central bank now forecasts a 0.7% contraction in the Swedish economy next year and expects its key rate to peak around 2.5% in the second quarter of 2023, whereas in June it had said expect a peak around 2% early next year.

“We (…) believe that the key rate will rise higher and we do not rule out a peak at 3.5% at the end of 2023”, commented Kristian Feste, head of fixed rates at Ohman Group.

On the foreign exchange market, the Swedish krona only briefly benefited from the Riksbank’s announcements and around 08:00 it lost 0.14% against the euro at 10.81 and 0.18% against the dollar at 10.78 .

(Stockholm office report, French version Marc Angrand, edited by Kate Entringer)

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